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Petitioner underpaid his tax each year for which Roberts applied
the source and application of funds method.
2. Fraudulent Intent
Respondent must prove by clear and convincing evidence that
petitioner had fraudulent intent. Parks v. Commissioner, supra
at 664. Fraud is defined as actual, intentional wrongdoing,
Mitchell v. Commissioner, 118 F.2d 308, 310 (5th Cir. 1941),
revg. 40 B.T.A. 424 (1939), or intentionally committing an act
for the specific purpose of evading a tax believed to be owing.
Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg.
T.C. Memo. 1966-81.
The Commissioner may prove fraud by circumstantial evidence
because direct evidence of the taxpayer's intent is rarely
available. Stephenson v. Commissioner, 79 T.C. 995, 1005-1006
(1982), affd. 748 F.2d 331 (6th Cir. 1984). The courts have
developed a number of objective indicators or "badges" of fraud,
such as: (a) A pattern of understatement of income, (b)
inadequate books and records, (c) implausible or inconsistent
explanations of behavior, (d) engaging in illegal activities, and
(e) failure to cooperate with tax authorities. Bradford v.
Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.
Memo. 1984-601. We consider all of the facts and circumstances
of each case to decide if fraudulent intent is present. King's
Court Mobile Home Park, Inc. v. Commissioner, 98 T.C. 511, 516
(1992); Recklitis v. Commissioner, 91 T.C. 874, 910 (1988).
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